Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Minimum And Living Wages In Times Of Cuts

Iyanatul Islam 17th October 2014

Yan Islam

Yanatul Islam

A few years ago, Richard Anker, a former ILO official, wrote an important paper on the historical evolution of the notion of ‘living wages’ and different ways of measuring them. This paper is one example of a growing realization that mandated minimum wages, however effectively enforced, can diverge significantly from ‘living wages’ that can sustain a worker and his/her family. Not surprisingly, the notion of the ‘living wage’ is embedded in the ILO’s normative framework. The 2008 Declaration refers to a ‘minimum living wage’. The 1970 convention on minimum wages demonstrates flexibility and pragmatism by suggesting that a policy on minimum wages should strike the right balance between the need to meet the living expenses of workers and their families and national goals pertaining to employment and economic development.

The harsh reality is that even in rich countries minimum wages can be well below the living wage. In New York City, USA, for example, the hourly minimum wage is $ 7.25, but the living wage for a single person is $12.75, while for a worker with a family of four, it is $ 26.12. In London, the minimum hourly living wage is £8.80 while the national minimum wage is £6.31 (as of 2013). Furthermore, this gap has increased significantly between 2003 and 2013.

The chasm between the decrees of governments and the needs of workers epitomizes the problem of low pay in wealthy societies that pre-dates the last global recession. Andrew Watt laments the fact that in Germany ‘(t)he 2000s were a lost decade for wage earners…(R)eal wages …declined by 4% during the last ten-year period’. In the post-recession era, workers in the UK are more than £3000 worse-off on an annual basis relative to the pre-recession peak.

Not surprisingly, a ‘living wage movement’ has taken root and gained salience in recent years in the developed world, especially in light of stagnant living standards in the post-crisis era. What is important to emphasize is that the adverse impact of paying living wages on business operations is considered to be relatively modest. One evaluation shows that if Wal-Mart in the USA pays living wages, ‘…the average Wal-Mart shopper would spend an additional $9.70 per year’, while low wage workers will benefit disproportionately.

Paying living wages is also a fiscally smart strategy as it reduces the fiscal support that the state has to provide to its low wage workers to bring them above the poverty line. For example, one estimate by a UK think-tank suggests that, if every low-paid worker in the UK (currently around 5 million) was moved to a living wage, the government would save on average £232 in lower social security expenditure and £445 in higher tax receipts. What is perhaps noteworthy is more than 800 British employers have voluntarily agreed to pay living wages to its low-paid workers in line with the calculations and recommendations of the Living Wage Foundation.

Of course, there are influential critics of the living wage movement. A good example is The Economist. Reflecting on contemporary UK experience, The Economist argues that ‘…large cuts in real wages help explain why the jobs market has hummed along in an otherwise sluggish economy… Brits, it seems, much prefer the hardship of low wages to the misery of no wages’. The Economist, it seems, has displayed its predilection: any job, however ill-paid, is better than no job. This is a re-statement of the influential view that there is a wage-employment trade-off.

The state-of-the-art evidence, on the other hand, is much more equivocal suggesting that the impact of paying higher minimum wages on employment is, in statistical terms, rather negligible. This is in line with the finding noted above that a major retailer, such as Wal-Mart, can readily absorb the payment of living wages without hurting customers in any significant way while helping low-paid workers. This result can be explained, at least partially, by the fact that costs of higher wages can be offset by a number of factors. Higher wages reduce turnover costs and thus reduce hiring expenses. Higher wages can boost morale and productivity that are best interpreted as payment of ‘efficiency wages’.

Despite the benign evidence on the wage-employment trade-off and the move by some employers to act as distinguished exemplars, the living wage movement is likely to face onerous obstacles, at least in the European Union (EU). There was a time when the ‘…European Parliament repeatedly expressed its concern about low pay and minimum wage levels in Europe’. Such concerns were, in turn, complemented by explicit proposals to link minimum wage levels to certain desirable benchmarks (such as 60 per cent of median wages) that would align them with the poverty and social exclusion dimensions of the Europe 2020 strategy.

Alas, times have changed. The prevailing view is that the current economic crisis in the European Union (EU) can be resolved through wage moderation policies (to induce competitiveness via the vehicle of ‘internal devaluation’), complementary structural reforms and fiscal consolidation. Thus, ironically, while ‘…treaties still exclude wages from EU competencies, the crisis has made wages… one of the central targets of EU policy-making’. How to sustain the living wage movement in light of such developments remains a central challenge.

The author writes in a strictly personal capacity.

Iyanatul Islam

Iyanatul Islam is Adjunct Professor at the Griffith Asia Institute, Griffith University, Brisbane, Australia and former branch chief, ILO, Geneva.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u4219834dafae1dc3 2 EU’s New Fiscal Rules: Balancing Budgets with Green and Digital AmbitionsPhilipp Heimberger
u42198346d1f0048 1 The Dangerous Metaphor of Unemployment “Scarring”Tom Boland and Ray Griffin
u4219834675 4ff1 998a 404323c89144 1 Why Progressive Governments Keep Failing — And How to Finally Win Back VotersMariana Mazzucato
u42198346ec 111f 473a 80ad b5d0688fffe9 1 A Transatlantic Reckoning: Why Europe Needs a New Pact Beyond Defence SpendingChristophe Sente
u4219834671f 3 Trade Unions Resist EU Bid to Weaken Corporate Sustainability LawsSocial Europe

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer

ETUI advertisement

HESA Magazine Cover

With a comprehensive set of relevant indicators, presented in 85 graphs and tables, the 2025 Benchmarking Working Europe report examines how EU policies can reconcile economic, social and environmental goals to ensure long-term competitiveness. Considered a key reference, this publication is an invaluable resource for supporting European social dialogue.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
The evolution of working conditions in Europe

This episode of Eurofound Talks examines the evolving landscape of European working conditions, situated at the nexus of profound technological transformation.

Mary McCaughey speaks with Barbara Gerstenberger, Eurofound's Head of Unit for Working Life, who leverages insights from the 35-year history of the European Working Conditions Survey (EWCS).

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Summer issue of The Progressive Post is out!


It is time to take action and to forge a path towards a Socialist renewal.


European Socialists struggle to balance their responsibilities with the need to take bold positions and actions in the face of many major crises, while far-right political parties are increasingly gaining ground. Against this background, we offer European progressive forces food for thought on projecting themselves into the future.


Among this issue’s highlights, we discuss the transformative power of European Social Democracy, examine the far right’s efforts to redesign education systems to serve its own political agenda and highlight the growing threat of anti-gender movements to LGBTIQ+ rights – among other pressing topics.

READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

BlueskyXWhatsApp